How to avoid an Obamacare penalty

Consumer Reports
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You may have heard that if you don’t purchase exactly the type of health insurance that the Affordable Care Act (ACA) requires, the Internal Revenue Service will slap you with a penalty come tax time. Well, that could happen. But you still have time to avoid the Obamacare penalty by buying insurance. And even if you don’t, there are lots of exemptions built into Obamacare that might get you off the hook.

The ACA mandates that, if you’re not already covered, you must buy health insurance that includes “essential benefits” such as hospitalization, maternity and newborn care, and mental health services. Ignore the mandate, the law says, and you will be fined either a flat dollar amount or a percentage of your household income when you file your 2015 taxes.

The penalty will be the higher of these two amounts: $325 per uninsured adult plus $162.50 per child, or 2 percent of household income above what’s called your “filing threshold.” The filing threshold is about $10,000 for an individual, $20,000 for a couple. (Read more about how much your fine might be.)

Read more about signing up for health insurance, and get rankings of health insurance plans.

But for most people, the likelihood of a fine is pretty slim. That’s because there are some 30 exemptions, or waivers, to the law. In fact, the Congressional Budget Office estimates that only about 10 percent of the people who were uninsured in 2014 will owe a penalty when they file taxes this year.

Common exemptions

Here are three of the common ways you might escape the fine:

  • If you were uninsured for less than three consecutive months. The fine only applies to people who have been without insurance longer than that.

  • If the lowest-priced coverage available to you, even after applying a government subsidy, would cost more than 8 percent of your household’s income.

  • If you earn less than $10,150 (or $20,300 for a married couple) and thus, are not required to file income taxes.

Hardship exemptions

Late in 2013, the government added 14 new waivers for people who have experienced personal hardships such as domestic violence, substantial property damage from a fire or flood, the death of a close relative, a utility cut-off, or bankruptcy. Some will excuse you from paying the penalty for up to three months, while others exempt you for a full year. For example, the government is offering a one-year waiver to people who don’t qualify for Medicaid because they live in a state that’s refused to expand the program under ACA rules.

Many of those hardship exemptions do more than cancel the fine. They may also let you buy coverage after the open enrollment period ends on Feb. 15, or permit you to purchase insurance that doesn’t meet Obamacare’s strict rules for “minimum essential coverage.”

For example, if a natural disaster kept you from enrolling on time, you can sign up after the deadline. And if you received a letter from your insurer telling you that your old coverage was canceled because of the ACA, this year you can meet the mandate by buying a low-premium, catastrophic plan.

How to claim an exemption

You can claim some exemptions on your tax return, but must obtain others from your state Health Insurance Marketplace. This IRS chart provides details. HealthCare.gov has more information on how to apply for specific exemptions.

To get a complete list of possible exemptions, you will need to check a few places:

As for the timing, you can apply for any waiver right now, and probably should. It may take time to process your application.

—Maggie Mahar



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